Dot.coms may be bombing on the stock market, but B2B e-commerce is set to boom. And the good news is the food industry is one of the top five growth areas. Joy Redmond explains how online trade in the food and beverage industry has developed.

Despite the recent downturn in technology and Internet stocks, the growth of worldwide e-commerce is forecast to continue. B2B (business to business) is widely held to be the most promising element and will contribute more to the growth of e-commerce than its B2C counterpart (business to consumer). Moreover, readers will be pleased to learn that the food and beverage industry has been identified as one of the top five online B2B industries with a trade forecast of US$863bn in 2005 (Jupiter, November 2000).

When did it all begin?

Electronic Data Interchange (EDI) undoubtedly formed the foundation of where we are today as it encouraged the digitisation of traditional paper-based communications. This meant previously unavailable data was suddenly accessible, enabling suppliers and buyers to work together more efficiently. This led to error reduction and process and time improvements. However on the downside, EDI requires all participants to conform to the network’s standards, it does not provide for collaboration as the data is not delivered in ‘real-time’ and it is expensive to build and maintain.

In essence, EDI played a pivotal role in laying the foundations and proving the benefits of the digitisation of traditionally time-consuming paper-based activities. “While EDI networks are dominant today, other types of Internet exchanges are expected to develop and EDI will account for only a third of purchase volume in 2003″ (Roland Berger Strategy Consultants, 2001).

Online catalogues were probably the first online trading facility available on the Internet and were utilised by all industries. In basic terms, catalogues compile and normalise information to fit a standard template. As the pricing and product information is only as relevant as the most recent update, catalogues by their very nature assume a relatively static market i.e. suitable for products with fixed product descriptions, fixed specifications and fixed prices.

Catalogues are only applicable to certain industry sectors. Within the Food and Beverage industry, the foodservice sector would be an example of a sector that could benefit from this type of application. However, static technology does not work for dynamic markets such as the trade of raw materials, which involves the purchase of mission critical inputs.

Marketplaces soon emerged as the next step in the evolution of online trading with assurances of reduced prices, global reach and so on.

Horizontal marketplaces such as targeted large companies with large procurement budgets and typically managed ‘events’ involving indirect goods. While horizontal marketplaces offer significant cost savings, the fact that they are non-industry specific means that they do not address the issue of direct raw material procurement which typically makes up 80% of most Food and Beverage companies’ expenditures.

At the same time, Vertical virtual communities arrived offering industry sectors a one-stop-shop portal of industry information and resources. Content and community elements were favoured over commerce elements to build a critical mass of visitors.

Commerce elements are typically non-mission critical items such as software, books and videos. Some vertical community sites offer e-trading facilities but more often than not the platform is not industry-specific and therefore is not as flexible as an industry-tailored product.

Vertical marketplaces emerged in response to the arrival of the horizontal marketplaces with an emphasis on meeting the requirements of a given industry. In a March 2000 survey of key purchasers of web procurement solutions, 57% of the respondents rated an “industry tailored” approach as an extremely important factor in their choice of web procurement solutions, (Zona Research, 2000). Typically the online trading functionality was designed to reflect the offline trading processes of the industry or niche. In general the content and community elements were not considered as critical as the commerce element.  The vertical marketplaces focused on the trade of indirect goods, as it was easier to develop the technology to facilitate the trade of such. However some vertical marketplaces developed platforms designed for the trade of direct goods such as and

“The need for agreement among competitors really slows down the consortium B2Bs,” (Penler, Ernst & Young LLP)

In response to the hype and promise of online trading, the industry giants fought back and 2000 saw the entry of a number of Industry or Consortia-led marketplaces such as MyAircraft (aerospace), Covisint (motor) and Transora and CPGmarket (food). While budgets and public relations activities were large and loud, the execution of online trading of direct goods has not featured as much in the media. “The need for agreement among competitors really slows down the consortium B2Bs,” (Penler, Ernst & Young LLP). Realistically plans to develop integrated mega-hubs catering for all elements within an entire industry and its supply chain are more likely to be the reason for the delayed release of ‘live#; trading solutions for direct goods. “The challenge will be enormously difficult and time-consuming to achieve seamless end-to-end integration for all participants within the entire B2B Internet exchange universe in the years to come,” (Electronic Market Center, 2000).

Forrester Research predicts the following consolidation to take place in the marketplace landscape this year and also next year.

Consolidation of e-Marketplaces ’01-’02

  • Buyers and sellers become more demanding.
  • Independents join forces.
  • One-sided markets (either for buyers or sellers) will seek neutrality.
  • Consortia will struggle – members in lengthy negotiations over issues like product strategy and technology. Many participants will flock to other sites that are up and running.

Consolidation of e-Marketplaces #;02-#;03

  • E-Market trade hits hypergrowth.
  • E-Marketplaces reach critical mass of volume
  • Alliances form between dotcoms and Consortia.
  • Participants tie-in with commitment to XML-based processes and data standards championed by market makers.
  • Functionality soars.

However, a Merrill Lynch & Co. survey of 19 large auto parts suppliers found that most intended to join Covisint [although] more than half the suppliers plan to build private exchanges as well, (Business Week Online, 2000).

Today – trend toward private trading

Over the past 12 months, the lack of liquidity and failure to drive sufficient transactions through marketplaces has led to a high closure rate of both horizontal and vertical marketplaces. With an estimated 93% of B2B e-commerce currently transacted privately (eMarketer, 2001), it is unlikely that open marketplaces will re-emerge as a viable business model in isolation. AMR Research believes that private marketplaces will form the cornerstone of the US$5.7 trillion e-commerce market and each firm will need to deploy a strategy for a private exchange in order to compete successfully. ‘In the next three years, there’ll only be two or three open exchanges per industry running;- vs. hundreds or thousands of private marketplaces” (AMR Research Inc, 2001). This is apparent already in the food industry with launching two private trading platforms in early March of this year and following suit shortly afterwards.


The food industry is presented with an array of marketplaces and software vendors. The Merrill Lynch & Co. study illustrates that the online trading options presented above are not mutually exclusive and it will be some time before we will see more definite exclusive online trading behaviours. However, the recent trend away from ‘pay per transaction’ towards subscription and licensing may help to develop exclusivity as existing providers attempt to address liquidity issues.

“The most significant obstacles to the development of e-commerce relate to human elements”

However, the evaluation of the variety of marketplaces and vendors is not the only factor for the food industry to overcome as in many cases human elements or the lack of internal readiness can be the greatest obstacles for traders adopting this more efficient method of doing business.  A survey of global retail and consumer packaged goods companies conducted by Anderson Consulting and the CIES Management Development Programme found the most significant obstacles to the development of e-commerce all relate to human elements. The graph below illustrates the findings regarding the major internal obstacles to e-Commerce development.

What are the major internal obstacles to e-Commerce development in your company?

In summary, web opportunity has moved from B2C to B2B, vertical offerings are preferred over horizontal offerings and open trading events are losing much ground to private trading events. As the providers scramble for liquidity, the food industry players (manufacturers and suppliers) must establish programs internally to be in a position to capitalize on the enormous benefits that e-commerce offers to both buyers and sellers in the food industry.

By Joy Redmond,

Joy Redmond is online marketing manager of – the B2B e-procurement solution provider that offers e-commerce enablement for food manufacturers and their ingredients suppliers. commenced trading in August 2000 and has offices in Ireland, the US, the UK and Germany.

Joy can be contacted by e-mail on:

Reuters Business Insight have recently published a report entitled “EProcurement: Successful Strategies for the emarketplace”. For details please click here.

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